A positive perspective post April
The last few months have seen a fair bit of bad news for landlords, Jeni Browne explains why buy to lets are still a good investment
First with the announcement regarding tax relief and then the second assault regarding the 3% stamp duty surcharge.
Needless to say, a lot of investors are feeling a little bruised at the moment and understandably so.
However, lets just take a moment to think about why buy to lets are still a good investment.
Firstly, house prices grew by 5.6% as an average last year.
The average savings rate (gross) sits at c1.5% and the stock market is down 4.8% over the last 12 months.
If we take this over the longer term, the average house price was £166k in 2005 and is now £205k – that’s an average increase of 25% (not taking into account regional differences, and we have a fairly major credit crisis in the middle of this).
The share prices have gone up and down (as you would expect) over the last ten years (did I mention that the housing market is relatively stable compared to the volatility of the stock market), sitting at 5903 points in December 2015 against 6586 in December 2005 and thus down 5.5%.
So in terms of an investment return, property outperformed the others and this isn’t taking into account any return on your buy to let investment in terms of rental surplus.
I then thought I would do a bit of maths, particularly looking at the stamp duty changes, to see how much worse off landlords will be on post April completions.
So lets compare costs from 2 years ago and now, assuming someone is buying a buy to let for £220k and borrowing 75%:
| When | Lender | Rates | Type | Monthly interest |
Interest over deal period |
Arrangement fee |
Stamp duty | Total cost over deal period |
| 2014 | TMW | 3.64% | Fixed for 2 years |
£568.70 | £13,650 | £1,999 | £2,200 | £17,850 |
| Now | TMW | 2.79% | Fixed for 2 years |
£383.62 | £9,207 | £1,999 | £8,500 | £19,706 |
| 2014 | TMW | 4.99% | Fixed for 5 years |
£686.12 | £41,167 | £999 | £2,200 | £44,336 |
| Now | TMW | 4.09% | Fixed for 5 years |
£562.45 | £33,747 | £999 | £8,500 | £43,241 |
So as I see it, although the stamp duty is £6300 more than it was two years ago, the reduced cost of borrowing now does help to soften this blow and actually, as it stands from April on a 5 year deal you work out better off!
Now to run the same numbers but for borrowing through a Ltd Co, as this will be the way to help mitigate the tax relief issues:
| When | Lender | Rates | Type | Monthly interest |
Interest over deal period |
Arrangement fee |
Stamp duty | Total cost over deal period |
| 2014 | Paragon | 3.75% | Fixed for 2 years |
£515.63 | £12,375 | £3,300 | £2,200 | £17,875 |
| Now | Paragon | 3.70% | Fixed for 2 years |
£508.75 |
£12,210 | £2,475 | £8,500 | £23,185 |
| 2014 | Paragon | 5.49% | Fixed for 5 years |
£754.86 | £45,292 | £3,300 | £2,200 | £50,792 |
| Now | Paragon | 4.30% | Fixed for 5 years |
£591.25 | £35,475 | £2,475 | £8,500 | £46,450 |
Now I absolutely appreciate that different purchase prices and loan amounts will produce different figures, and I also acknowledge that between 2014 and now stamp duty was changed.
But what we can clearly see is that comparing where we will be in April to where we were 2 years ago, its not as bad as it would initially seem.
And actually if you buy through a ltd Co and take a 5 year fixed you would potentially stand to be significantly better off to boot.
Diary of a Buy to Let Purchase
2.12.2015 Part 1 It was that or a Range Rover
4.12.2015 Part 2 I've made £800 already and I haven't got the mortgage yet
7.12.2015 Part 3 The demise of Nathaniel Pig
8.12.2015 Part 4 Call off the dogs...
11.12.2015 Part 5 @***** bank account
17.12.2015 Part 6 Business bank account interview or Center Parcs?
21.12.2015 Part 7 - Reality bites...
29.12.2015 Part 8 - The method behind the madness
12.01.2016 Part 9 - Join me in a buy to let fist pump?
You might also be interested in:
27.07.2015 Buy to let - from personal to limited company ownership
Prior to now, when asked by clients whether buy to let properties should be bought in their own names or whether they should use a limited company we have always said “it all depends”. Well the Summer Budget 2015 has altered everything and whilst the answer is still “it all depends”, the balance has shifted markedly in favour of limited companies.
9.12.2015 Borrowing through a newly set up Limited Company
Jeni answers one of the questions we are asked regularly at the moment – Can I borrow through a newly set up limited company?
11.11.2015 Setting up an SPV Limited Company
Buy to let lenders which offer mortgages to limited companies usually require the limited company to be an SPV (Special Purpose Vehicle). Jeni explains what one is and how to get one.
26.11.2015 February will be too late
What does the 3% stamp duty surcharge mean for landlords looking to finance buy to let property? Steve Olejnik gives his opinion and shines some light on possible routes forward.
26.11.2015 George hits buy to lets with 3% stamp duty surcharge
David Whittaker, MD at Mortgages for Business looks at the effects of the 3% stamp duty surcharge on buy to let properties and the restrictions of mortgage interest relief on landlords' portfolios. In essence his advice is to act now and not to wait until the new year.
26th January 2016
